General Electric Co. (GE) and Caterpillar Inc. (CAT), the world’s largest locomotive makers, are rushing to develop natural gas-powered models in a potential shift from diesel’s six decades as the fuel of choice for railroads.

Three of the biggest U.S. rail carriers -- Berkshire Hathaway Inc. (BRK/A)’s Burlington Northern Santa Fe LLC, Union Pacific Corp. (UNP) and Norfolk Southern (NSC) Corp. -- are working with manufacturers on using gas as an alternative power source for freight trains. CSX Corp. is studying the technology.

Tapping the nation’s glut of gas as a transportation power source opens a new front in the global competition between GE and Caterpillar. Liquefied natural gas holds the promise of cutting railroads’ costs, curbing greenhouse-gas emissions and ushering in the industry’s biggest change in fuel technology since diesel displaced steam in the 1950s. “We are entering a new era where natural gas will be a major fuel,” Lorenzo Simonelli, chief executive officer of GE’s transportation unit, said in an interview. “If you believe the price advantage over diesel is going to stay here for the next 10 to 15 years, then LNG is a revolutionary fuel.” ...

“In the last 12 months, there’s been a tremendous increase in activity around LNG within North America,” Simonelli said. “In the not-too-distant future, you’ll see some announcements being made about how we can apply LNG into a locomotive.”

Fuel trails only employee compensation among American railroads’ expenses, spurring a search for cheaper alternatives. Union Pacific, the largest U.S. railroad by revenue, burned 1.09 billion gallons of fuel last year at an average price of $3.22 a gallon, according to SEC filings.

That’s significantly costlier than liquefied natural gas. It costs truckers $2.99 to buy LNG with the same energy content as a gallon of diesel at Clean Energy Fuels Corp. (CLNE)’s Port of Long Beach facility, the world’s largest LNG fueling station, said Gary Foster, the company’s spokesman. That’s before volume discounts that can reduce the price by as much as 30 percent, he said, meaning some customers pay as little as $2.10. Railroads are turning to locomotive makers, including Fairfield, Connecticut-based GE and Peoria, Illinois-based Caterpillar, for engines that can help them take advantage of those savings.